Private equity investments

What they are, explained with examples,

What are they? Canada has a large pool of privately held, often family-owned, enterprises, according to a report on private equity by the Conference Board of Canada. Problems can arise when it’s time for the founders to retire or for the business to expand. Selling shares to the public to raise money is not always an attractive proposition for owners who want to maintain the fundamental character of the company. They are wary of losing the money they’ve already invested and wary of losing control. “For these entrepreneurs, there is an almost visceral fear that a public equity listing will change the fundamental nature of the company. Private equity is more in keeping with the existing governance structure of privately held firms, albeit often replacing family members with professionals,” according to the Conference Board report. Private equity firms provide companies with the money they need to grow a business by expanding into new markets, or taking on more and bigger projects. Sometimes they get involved to rescue a brand in trouble. Some examples: This year, Quebec’s Cirque du soleil was sold to a group headed by a U.S. private-equity firm with Chinese partners after founder Guy Laliberté decided to sell a majority stake. Cirque du soleil ran into financial trouble in 2013, laying off 400 employees. Business was booming, but it wasn’t making a profit. In May, a private equity firm called PTG Capital Partners Ltd. filed an offer with the SEC to buy Avon at three times what it had been trading for a week earlier. Before the ruse was detected, the value of Avon stock soared 20 per cent. The fraudulent filing was traced to a computer in Bulgaria and the SEC seized $2 million in assets associated with the trades. In 2013, Alaris Royalty Corp., a private equity firm in Calgary, invested $15 million in a company taking over Sears Home Services. Under the new operators, SHS collapsed in a matter of months, throwing all 650 employees out of work 12 days before Christmas. According to the Conference Board report, Canadians are private equity investors through the Canada Pension Plan Investment Board (CPPIB). In 2011, it points out, CPPIB was a partner investor in one of the largest global private equity deals: the $6.3-billion (U.S.) acquisition of Texas-based Kinetic Concepts Inc.